RBI hikes Repo Rate by another 50 basis points to 5.4%

The Reserve Bank of India(RBI) has hiked the policy repo rate by 50 basis points, to 5.40%, considering the prevailing adverse global environment, resilience in domestic economic activity, uncomfortably high inflation level. The repo rate, the rate at which RBI lends money to commercial banks, has been hiked by one half of a percent.

The RBI’s Monetary Policy Committee reached this conclusion because it considered it was important to keep inflation and inflationary expectations in check. In his online delivery of the Monetary Policy Statement, RBI Governor Shaktikanta Das warned that “continued high inflation could destabilise inflation expectations and impair growth in the medium run.” You may view the Governor’s speech here: https://youtu.be/2VXCSN9Ypes.

Additional Measures

The Governor announced a series of five additional measures, as given below:

Encouraging Standalone Primary Dealers to further Develop Financial Markets

Subject to prudential regulations, Standalone Primary Dealers (SPDs) will now be able to provide all foreign exchange market-making facilities now allowed to Category-I Authorized Dealers. Customers will have access to a larger group of market makers to manage their foreign exchange risk as a result. Additionally, this will broaden the Indian forex market.

Additionally, SPDs will be allowed to do transactions with non-residents and other market makers in the offshore Rupee Overnight Indexed Swap market. This action will complement a related one for the banks that was announced in February of this year. These actions are anticipated to promote price discovery and do away with the division between onshore and offshore OIS markets.

The actions are being taken in light of the significance of SPDs in the expansion of the financial markets.

Managing Risks and Code of Conduct in Outsourcing of Financial Services

Outsourcing of financial services by regulated firms has become more common. A draught Master Direction on Managing Risks and a Code of Conduct in the Outsourcing of Financial Services will be released by the RBI for public discussion in light of this. By doing this, the risk management framework will be strengthened, and the existing regulations will be harmonised and consolidated.

Bharat Bill Payment System to be open to NRIs as well

Cross-border inward bill payments will now be accepted using the Bharat Bill Payment System (BBPS), an interoperable platform for standardised bill payments. This will make it possible for NRIs to use the system to pay their family members’ utility, educational, and other bills in India. Senior citizens will so tremendously benefit from this.

Credit Information Companies to be brought under Reserve Bank Integrated Ombudsman Scheme (RB-IOS) 2021

Credit Information Companies (CICs) are being included in the RB-IOS framework in order to give it a wider scope. Through this, we obtain a free substitute option for resolving complaints against Credit Information Companies.

Additionally, these businesses will now require their own internal Ombudsman (IO) framework. According to the Governor, this will make it easier for CICs to resolve internal disputes.

MIBOR Benchmark Committee to be set up

The RBI has made the decision to form a committee to thoroughly examine the problems associated with the creation and application of interest rate derivatives, including the requirement for switching to a different benchmark for the Mumbai Interbank Outright Rate, and make recommendations for future steps. In light of recent worldwide initiatives to create alternative benchmark rates, the study is being conducted.

No change in Growth Projection – 7.2% for 2022-23

The governor stated that the central bank’s growth forecast for the Indian economy is still at 7.2 percent for the current fiscal year, with Q1 growth projected to be 16.2 percent, Q2 growth projected to be 6.2 percent, Q3 growth projected to be 4.1 percent, and Q4 growth projected to be 4.0 percent. 6.7% real GDP growth is anticipated in the first quarter of 2023–2024.

In regards to inflation, the Governor highlighted that in order to keep inflation within reach of the medium-term target of 4% while promoting growth, monetary policy should continue to maintain its current stance of withdrawal of accommodation. The governor announced that RBI has reaffirmed its dedication to preserving price and financial stability in order to put our economy on a path of sustainable growth.